Barbados Government Responds to Professor Michael Howard

Barbados Economic Recovery Team’s responses to the questions posed by Professor Michael Howard on page 26A in the Nation’s Sunday Sun for Sunday, September 9, 2018:

Ques: What are the projected dollar cuts for current expenditure over the loan period?

Ans: The loan period is for 4 years, with the last disbursement in May 2022. Projected expenditure cuts over this period amount to $571 million.

Ques: Has fiscal revenue been overestimated, given the fact that the economy is in recession, and large job cuts will occur which will further reduce tax revenue yield?

Ans: The fiscal revenues have not been overestimated. They take into account the economic business cycle and all factors impacting it, including any possible job losses.

Ques: How many workers in the public service and the SOEs are estimated to be sent home?

Ans: The program does not take the draconian and outdated approach by targeting some number for sending home workers. The objective of reform to the SOEs and to Central Government is to make the public sector fit for the challenges of the twenty first century through modernising and improving the efficiency, quality and cost effectiveness of the public sector. This will mean adjustment and rationalisation of SOEs and some Government Departments. It will also mean retooling and empowering, retraining and enfranchising some of the public sector workers to improve effectiveness. There will be job losses in some areas but there will also be employment gains in other areas where deficiencies have long set in. The net effect is likely to be a reduction in public sector employment but the number is also likely to be far smaller than the numbers bandied around and all will be offered some alternative, be it in the modernizing and digitizing program, an extensive training program, early retirement or a job in the private sector.

Ques: Is there any estimated money value of severance payments in relation to job retrenchments?

Ans: This is still being worked out at the level of the Social Partnership.

Ques: Are there any preliminary estimates to show how many SOEs will be merged, shut down or privatised, or the savings to be derived from these actions? Will user fees be charged for certain services, and if so, which ones?

Ans: The SOEs reform process began with what can be considered the most comprehensive consultation in our modern history from the Social Partnership to the leadership to the wider public, to identify potential for efficiency gains, cost recoveries, and enfranchisement through divestment of entities and/or activities. Indeed, almost 5000 persons participated in answering 93 questions in an on-line survey. There is consensus from the consultation process that 29 entities must be transformed with a savings of about $115m by end of 2019/20. It is hoped that around one third of these reductions will be felt by the end of 2018/19 with the balance in the following fiscal year. Additionally, all Government entities will benefit from stronger timelier financial accounting and oversight.

On the issue of user fees, there are currently four entities which provide an essential public service that the private beneficiaries have a capacity to pay for and where they do so in many other countries. These entities are the Vital Statistics of the Supreme Court Registry, the Land Registry, the Corporate Affairs and Intellectual Property Office, and the Financial Services Commission. The process of moving to full cost recovery of these activities through user fees will also involve an initial and ongoing independent review of the potential for greater efficiencies, for example, through the use of new technologies and approaches, to keep these fees to international norms or lower. The Transport Board and Sanitation Services are also entities where increasing user fees are being considered as part of cost-recovery process but these two entities also present opportunities to empower and enfranchise Barbadians, e.g. helping drivers and their teams own their buses and sanitation trucks, bid for work from the Government and commit to minimum standards of public service. As such, any increase in user fees for these two entities be a small part of a larger restructuring effort within these entities.

Ques: Is there an estimated target for the new bus fare?

Ans: No, as any increase will be part of a comprehensive transformation process involving improving efficiencies and reducing cost.

Ques: What are the “conditionalities” or requirements for the IMF loan?

Ans: The conditionalities of the IMF loan are the targets set by Barbados itself under the Barbados Economic Recovery and Transformation program (BERT). These are: i) achieving a 6 percent primary balance by fiscal year 2019/20 and maintaining it for the next four year; ii) no further accumulation of arrears; iii) reducing transfers to SOEs by no less than the amount identified under the BERT program; iv) any increase in public debt must be consistent with keeping the debt-to-GDP ratio on the downward trajectory to reach 60 percent by 2033; and v) maintain social spending at a level consistent with protecting the most vulnerable in society.

Ques: What will be the nature and perceived impact of debt restructuring?

Ans: The public debt was deemed unsustainable by every possible measure and every international institution (as reflected in the numerous downgrades to the very bottom of the rank of rated countries), including the IMF. Not only the stock of debt but the servicing of the debt was also choking the life out of the economy. Indeed, the gross financing needs of Government reached 41 percent of GDP in 2017 as highlighted in the IMF 2017 Article IV Report on Barbados. As such, the Government announced a comprehensive debt restructuring, including external debt to commercial creditors and treasury bills, on June 1, 2018. Significant progress has been made in discussions with both domestic and external creditors and an exchange offer for Barbados dollar-denominated debt was issued on September 7, and the plan is to table an exchange offer external (US dollar-denominated) debt to commercial creditors shortly. Government debt held by the Central Bank of Barbados and by the NIS will also be restructured. The successful restructuring of the debt will put the debt on a sustainable path to reach 60 percent by 2033 and free up much needed fiscal space for keep infrastructural and development spending.

Ques: Was an increase in public sector salaries and pensions, as well as removal of UWI fees an appropriate economic policy, given that the stated goal of annual IMF briefings, as well as the present programme, is to reduce current expenditure?

Ans: This was absolutely an appropriate policy and one which received zero push back from the IMF. The design of economic policy must not only consider the current circumstances but also what has gone before. In doing so, it is clear that the appropriate policy is an increase in salaries and pension, given that the public workers in Barbados have not had a salary increase in over a decade and because of inflation the cost of living has increased considerably. This (the increase in salaries) then becomes the baseline on which the forwarding looking polices can be designed. Similarly, the imposition of UWI fees had created hardship for many Barbadian students, even more so in an environment of a prolonged economic recession. The removal of fees had to be dealt with immediately and be incorporated in the baseline. The same can be said of the additional expenditures to address the sewage and sanitation problem, which required immediate attention.

Ques: Is the flat tax (a modified poll tax) printed on the water bill an unfair or inequitable levy, which will impact proportionately heavier on the poor than on higher income groups??

Ans: We have protected the poorest and most vulnerable with higher pensions and welfare payments. The adjustment is skewed to the most fortunate in our society by raising the top tax rate and corporate tax rates, but we also believe that we are all in this together and everyone should make a contribution even if it is as small as $1.50 per household per day or 30 cents for everyone in the average-sized household.

Ques: Is the IMF loan of US$290 million too small for an extended Fund programme, given our very low level of reserves, and our extremely high level of debt?

Ans: No it is not too small for an Extended Fund Facility (EFF) as it represents 220 percent of quota and any amount above 100 percent of quota is considered ‘high access’. Yes, Barbados could have benefited from even higher access to build reserves buffers, given our vulnerability to external shocks and natural disasters. However, we must also be mindful that the greatest benefit of the endorsement by the IMF of our economic recovery and transformation program is the catalytic role such an endorsement plays. Our development partners, the Inter-American Development Bank and the Caribbean Development Bank have both pledged significant amounts of financing, approaching BDS$300m for Barbados once our program is approved by the IMF Executive Board, which is likely to be in a few weeks. Together we are likely to receive BDS$1bn of support to our reserve from our multilateral partners as a result of the IMF supporting BERT .

Ques: Is a previous detailed report by the IMF on the SOEs available, which would offer some guidance in our monetary and financial situation, rather than having to depend on a qualitative consumer survey?

Ans: While a report by the IMF on the SOEs is available and can be sourced from the Ministry of Economic Affairs, we opted to rely on the comprehensive survey of the Barbadian public which reflects the wishes and views of Barbadians. Not only is this consistent with the principle of us – Barbadians – developing the Barbados Economic and Transformation program, but all the research show that where the public has a say in the design of economic policy, the implementation of said policy is more likely to be successful.

Ques: Are loans from financial institutions like the Inter-American Development Bank, where we can tap funds, also not subject to conditionalities?

Ans: No and this is because many institutions and institutional investors rely on the IMF endorsement, which is taken to imply that the country’s program is based on a coherent and consistent set of policies that are highly likely to be successfully implemented and with the desired outcome. This is the catalytic role of IMF support we referred to above.

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149 comments

Not unexpectedly for the blp yardfowls to pleat big rocks at OSA
OSA is not my favorite cup of tea as i blamed him for alot of the borrowing that is not burdening the country
However he made some excellent points which cannot be over looked or simply push aside
What stricks most is his close up and personnel analysis of what Mia is doing wrong in her negotiations with the IMF (which) to him disadvantage barbados into receiving more support from the IMF
He belives that the burden of the taxpayer would be prolonged and barbados would be caught in a vicious cycle of revolving loans.to pay recurring debt

Like him or not Arthur is correct. The real problem is that we beating up on the Pulic Servants and accusing the workers, in general, as being lazy.
In the mean time,the private sector is getting a free pass. The truth will eventually come out.
It is very ironic, that the much maligned Sandals, is going to invest more money in our struggling economy than all its critics.
I maintain that it is the private sector leadership, that lacks creativity , innovation and vision.
How can we expect to go forward with these corporate parasites.
Butch (Sandals) and Doyle (Crane) both expatriate business people.
Where is the investment from the local corporate McGuffies ?

@ac
stop lying please.
“He belives that the burden of the taxpayer would be prolonged and barbados would be caught in a vicious cycle of revolving loans.to pay recurring debt”
you mean YOU BELIEVE that. He NEVER SAID this.
In fact, if the IMF money is not enough, he is requiring more IMF money….hence, more debt? And he said this would likely have to come from ‘other sources’.
And he slammed government in Barbados in general….by saying the IMF will not tolerate lax or corrupt operating practices. He means like years without an annual report, or outside commissions to obtain government business.
Then another one of your effing dreams….”What stricks most is his close up and personnel analysis of what Mia is doing wrong in her negotiations with the IMF (which) to him disadvantage barbados into receiving more support from the IMF”
What BULLSHIT. What WAS actually reported was…”Arthur reminded the audience that a country’s access to IMF financing was based largely on its quota with the fund rather than its needs. Arthur questioned the adequacy of the $590 million earmarked for Barbados, which is about 220 per cent of Barbados quota under the fund.”
do you understand what 220% means? Barbados is getting MORE than its quota. read MAM & Company got 2.2 times MORE than it was allotted (quota).

@WS
“Where is the investment from the local corporate McGuffies ?”
it is in Guyana, USA, Ecuador, Canada, Jamaica, Costa Rica, etc etc. They know well enough to avoid Barbados, let the foreigners deal with it, there are bigger fish elsewhere. Bajans do not abuse foreigners like they do their own.

Recently I said that wealth redistribution and inequality are not part of the political discussion in Barbados, and poor BERT is totally ignorant of such topics. I suggested an inheritance tax, but was ignored.
You should read Warren Buffet, writing in the New York Times (Aug 14, 2011) : “While the poor and middle class fight for us in Afghanistan, and while mot Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks. Some of us are investment managers who earn billions from our daily labour but are allowed to classify our income as “carried interest”, thereby getting a bargain 15 per cent tax rate. Others own tax index futures for ten minutes and have 60 per cent of their gain taxed at 15 per cent, as if they’d been long-term investors.”
It should be compulsory reading for the BERT technocracy. @William, architects of the neoliberal econo0mic thought that crashed the global economy in 2008, kept their heads down for aw bit, now they have resurfaced blaming big government for all the economic problems.
They conveniently ignore the subsidies they get, the tax breaks, the advantages they get when the state acts as investor of first; they want greater austerity, rather than bigger growth. They conveniently forget that the billions spent by the US, EU, UK and Japan have been used to buy bad debt off the big banks and insurance companies. They have corrupted the classical labour theory of value and replaced it with some nonsense called the Marginal Revolution with something called the theory of market prices. In other words, if an asset has a rice, it is generating value.
Therefore, the more an executive earns, the more value s/he creates. What a fib? @William, Th US government spends $32bn annually subsidising Bi Pharma, yet the buggers continue to increase the cost of pharmaceuticals. Elon Musk has received over $5bn in government subsidies for Tesla and SpaceX, mot of it from NASA and the department of energy; the UK government spent £45bn bailing out RBS bank. @William, the suckers are ordinary tax payers.
In Barbados it works because there is no national debate; there is howling and shouting from the hysterical mob; one minute about a dodgy will and family inheritance, the next about the genius of the former prime minister that led us in to this mess.
@William, it does not matter if I am talking crap as long as I have a PhD from Trump University, or am a retired professor, or a burnt out QC or the village idiot.

We don’t even have $1 yet, and the money is insufficient? LOL
See all of who else will loan us money WITHOUT the IMF facility. I don’t meed to tell you that, because that is why your former boys began tapping into the NIS and cranking up the printing presses.
All the years I was on here pushing for less deficits, all you could tell me was about the social economy. Now, you understand suddenly that debt is a burden? It isn’t a burden, it is all about the maintaining the social economy. The GoB is supporting the poor and vulnerable, they even gave employees a small raise.

Mariposa,
You may not be an economics professor, or a PhD, but you are spot on. If you borrow you incur more debt. Kenneth Rogoff has told us that highly indebted nations cannot easily grow themselves out of their debt, without some form of heterodox policy intervention.
@Maripsda, this is precisely what is needed; new ideas; new policies; new approaches. If BERT puts waffle in, they will get waffle out. Policy is as much about shaping markets as it is about regulating them. BERT will fail.

@ac
inaccuracy #1
“The decision to suspend payments came as a shock to foreign investors who had assumed they would be excluded from any debt restructuring.”
Did they expect, given the massive ‘home grown’ debt, the GoB would essentially attack itself (the NIS), by killing payments (restructuring) on locally owned debt, while leaving them whole? See what happens when you ass-u-me? (they really meant ‘hoped’)

Just as it was in the “recent past” when there was a “consortium of ac’s,” we BU is now being similarly confronted with a “consortium of Mariposas.”

I’m forced to remind them that, when Barbadians were critical of the former inept DLP administration, they were constantly reminded by Donville Inniss, Sinckler, the DLP operatives and yard-fowls……..that rather than criticize……

……..they should “BRING SOLUTIONS.”

But now the “shoe is on the other foot” …………the DLP operatives assigned to BU are now using the forum to be overly critical of the current BLP administration…….

“It is very ironic, that the much maligned Sandals, is going to invest more money in our struggling economy than all its critics.”

Mr. Skinner

You seem to have purposely ignored the fact that Sandals was given 40 years tax free concessions…….including “all import duties, taxes, imposts and levies of any nature whatsoever, VAT on the provision of services that directly relate to construction works…..”

Also, SANDALS signed an agreement with Appleton Rum, which will see that Jamaican brand being sold as the first choice rum, ahead of Barbadian rums such as ESAF, Mount Gay, Old Brigand and Cockspur. Hotel bookings are made in the USA. All Barbados will gain from Butch is a few low level jobs at Sandals….as is the case with Sandy Lane.

It is also ironic that the same Arthur you are now praising as being correct……was the same Arthur who, during one of his lectures in November 2016, said the tax concessions granted to the Caribbean hotel chain Sandals were hurting the island’s finances, already reeling from a decline in revenue from the offshore financial services sector.

He also mentioned…….“In consequence, international business and financial services have migrated from Barbados, leading to a decline in revenues directly generated by the sector from $356 million in 2007 to $97 million in 2013.”

Artax an excellent contribution ,these Dems like Mariposa/ac,William skinner just criticizing for criticizing sake they are yet like the try a thing Government have yet to present anything of consequence going forward.Their agenda is to try to pull down Ms motley,s Government,hoping that Bajans would be crazy enough to re-elect those in my view wild boys ever again.However based on the election of a two time and four time loser to the top posts,this will not happen as they both have to win a seat first,capiche.

To be fair, you can’t place William Skinner in the same category as Mariposa, T. Inniss….or even the resident pantomath.

Although Mr. Skinner is critical of BOTH the BLP and DLP……..he always provides this forum with an alternative perspective. For example, he presented an extract from the NDP’s manifesto relative to that party’s youth policies, which clearly indicated that, over the years, both the traditional political parties have not presented any meaningful policies….educational or otherwise……for Barbadian youth…….

………other than “wuk-up fetes,” featuring Barbadian “bashment calypsonians” and Jamaican dub entertainers…….as well as the usual night cricket and football tournaments……which are organized during the election campaign period.

However, I agree that the usual suspects are “criticizing for criticizing sake” and “they are yet to present anything of consequence going forward.”

So the shoes is on wunna blp yardfowls feet…wear them
Now look at the retort from the blp yardfowls criticise the dlp supporters but not one word to say about OSA giving two thumbs down to Mia policies
But ha ha ha OSA is not alone in his criticisms of this Mia lead govt
Now the external creditors have a no holds barred criticism of this govt also
Boy uh tell uh not only barbados creditworthiness is in the toilet but the necessary trust needed in negotiations
What a dam shame

It’s obvious that you want to brand me as some DLPBLP apologist. You have to be completely out of your mind! Ask anybody on this blog about my contributions. Please leave me out of your family fight. I have no uses , political or otherwise for the decadent BLPDLP duopoly. I wish Ms. Mottley well as I did wish Mr. Stuart well. Mr. Stuart failed miserably. I will comment on Ms. Mottley as I see fit. At present , she is doing ok but her policies like those of the DLP
hold no excitement for me. Kindly leave me out of your family crap. And I mean crap.
@ Artax
Thanks for your objective comments.

Mr Skinner,i have read your contributions over time ,and as far as I am concern you are a Dem apologist,you can pull wool over other people,s eyes but to me although not as ridiculous as mmariposa,T Inniss and the pitbull turn poodle Fractured,you are on here as a spin bowler for the Dems and I call you out as I see you,capiche.You claim Ms motley is doing an alright job yet no where have I seen you state this but at the drop of a hat you ready to criticize.I stand by what I stated before,concerning you,you can like it or lump it.

interest is the lenders return on his risk, therefore the higher the interest the higher the implied risk of repayment. CS knew exactly what they were doing, and now, having already been fully repaid their capital they will lose some of their excessive expected profits. that’s what you get for lending to a country headed hell bent on destroying itself with deficits. they can thank big chris. they are of course sorry that they couldn’t force the sale of the hilton at 50% off, but sometimes that is how the cookie crumbles.

It is interesting that former prime minister Owen Arthur is now calling for regional alliances to combat the global economic crisis. He is right. I have previously called on this blog for a pooled Caricom-based foreign reserves fund and a CARICOM-based financial regulator in order to prevent a future Clico debacle. Of course, all this should have been part of the CARICOM-CSME discussions, which t one point was led by Mr Arthur.
Are we now going to have a grown-up debate, or yell and shout as usual?

An interested meeting took place on Thursday 13 September regarding the type of separation packages the government will offer public servants who will be terminated.The most amazing aspect of this meeting was that members of the private sector including two individuals from Sagicor who admitted they have limited knowledge of how the public sector functions are the principal players in the formulation of those separation packages. One of them is Mrs Estwick wife of Mia Mottley cousin. One of the proposals put forward is that entrenched public servants take their money and invest in Guyana. I was made aware that government is willing to make provisions for that. On another note a minister of the present government is trying to influence public officers when booking flights for ministers and public servants when going overseas on official business to use his travel agency.That is Mia version of accountability,transparency and having no corruption in her administration.

I have a problem with fork-tongued economists! During the past TEN plus years of DLP in office, I never heard much of the economists say that BARBADOS was in a LOCAL RECESSION and that that LOCAL RECESSION lasted about seven years or more. All of a sudden they now have talk and looking for instant results and quick to point everything under the sun.

The Prime Minister has outlined her vision for every Barbadian child speaking some level of Mandarin Chinese by 2030.
She has declared it was becoming increasingly necessary for Barbadians to have some level of competence in the main Chinese language, as she joined in celebrating the 69th anniversary of the founding of modern state of China at a cocktail reception.
“Our Government has set itself some very simple objectives by 2030, that each Barbadian child under the age of 18, among other things, should have been given the opportunity to be bilingual. While we recognize that English and Spanish are predominantly the two languages spoken predominantly in our hemisphere, we recognize that it is impossible to live in this world today without having a level of proficiency in mandarin,” said Mottley.(Quote)

Here is further proof, as if it were needed, of our prime minister, the every woman, instructing the nation that we must learn Mandarin by 2030 – 12 years. Is this our education strategy going forward? But BERT promises a knowledge-based economy, is this it? Is learning Mandarin an economic priority? We also got the tyrannical Chinese talking to us about law and order. Are we mad?
Apart from evidence of Chinese cultural colonisation, once again the prime minister is ignoring her ministers and speaking across all portfolios. The woman has not a single idea of what kind of society she wants Barbados to be. Maybe she thinks we should all be Chinese.
Why are her ministers tolerating this? Why are our media not critiquing this government? Or, are they prepared to give her six months? The problem with that is that in six months time there may not be a Barbados as we know it.
The woman is power obsessed; she must be in the limelight at all times and on all subjects. Is this the strategy of the Chinaman Mr Jong? It is all going to end in tears.

Well because they are all in her back pocket.They were the ones sent out to push her agenda to create negative news against every dems govt minister and every dems policy and to push for regime change.

Now their role is to highlight everything she says as if its the most brilliant ever and to blunt criticism.

China was generous to Djibouti – until they could not repay. Now China owns their harbour.
They ‘helped’ Maldives with a loan – and now own 40% of State-ownes resorts.
Madagascar lands are now owned by China
Zambia’s airport will be Chinese owned from next month
Ethiopia’s railway is now Chinese
Kenya’s mines now belongs to China – they could not repay the ‘generous’ loans….

It takes a SPECIAL kind of brass bowl to walk DIRECTLY from one kind of slavery to another even worse situation,
…so wunna DONE know why Mia needs to have us speaking Mandarin by 2030….

I wonder if ‘Mia cares’ Mottley is hearing the cries of those retired persons who have invested all their savings in government bonds.From the very first instance when these bonds were introduced bajans knew that they were safe and they would get what was agreed.

In comes Mia ‘she got this’ Mottley and in the first week of her administration she defaulted on the debt without talking to the foreign creditors,without consulting with anyone except Avinash and Clyde .Knowledgeable persons including Owen and Delisle Worrell advised against it

Now pensioners in one swoop has been placed into near destituition as all their savings which over the years they have been investing in government bonds now find themselves getting 1% interest on their investment and the period of investment move from 5 years to 15 years.

Pensioners,retirees,and those investing their small savings have been wiped out because of the shyte Mia did by defaulting on the debt without studying she head good.

So True T Inniss. What a manical decision
Having no alternatives Mia bushwhacked the whole country
As if not enough for the pensioners to swallow the bitter Clico Pie initiated under OSA reigns
She gives no thought or concern for the pensioners losing more of their savings
What a dunderhead

I wonder what June fowler of the Clico Policy Holders Assoc is going to do now that Mia has rescinded on the decision taken by finance minister Sinckler (which I didn’t agree with) to give a financial pay out of some sort to these policy holders.

Every other week BLP supporter June Fowler railed against the last government and nothing they said was ever good enough.So much so that Sinckler in frustration called her a bald pooch cat – which was thoroughly unacceptable as a minister of government.In a similar vein I suppose to what a former prime minister in the safety of the house of Assembly lambasted ordinary citizens of Barbados (by name) who he felt were too critical of him.

What we are seeing with people like June Fowler,the private sector,the Unions and those in the media – is that their Morning Words and their Evening Words don’t match up.

Toni Moore,Akanni McDowall,Mary Redman,David Ellis,Peter Wickham,Sanka Price,Eddie Abed and private sector persons – now all are asking people to hold hands and sing “Lets Hold Hands and Show We Love Bdos”.lol

We are now being urged by these said two mouth Demons that we should suffer in silence and in a sense wrap ourselves around the Bdos flag.

On another note – didn’t Leodean Worrell – Chairperson of the BWA say that she is going to publish the invoices from David Simmons and her payment made for the legal advice to the Water Authority.

She strongly rejected the notion of a $150,000.00 payment to Mia’s cousin and former Chief justice David Simmons.Yet more than 1 week later,and after promising to send this information to all the media houses we see squat.

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